What is a healthy amount of credit limit?

[Radiance]

Hello,

I am on my way to debt elimination. I have learned to live without using credit. I have not charged since August 2009, and 6 months later I am still sober

I am down to $2800 in credit card debt.. 13k on other debts.

[I know there is a whole discussion about using the credit cards and pay in full at end of month, but for now I am just not using them to keep my head straight]

As I pay my credit cards they reduce my limit. I have no problem as I don't want to use them, but I was wandering if there is a recommendation as to how much credit to have "available" for catastrophic emergencies assuming my EF is just 1500 and my car insurance deductible is $1000.

I have :
Visa 3000 I owe 2800 -
THis one was 5000 at some point, I dont know when will they stopped reducing my limit as I pay

Amex 1600 paid in full -
This one was $8000 at some point, they stopped reducing limit when I reached 1600

Care credit 5000 - paid in full, this is only good for health related costs on participating providers.They have not reduced my limit.

[kork13]

Really, I would say it's whatever you feel you could feasibly need. Myself, I wouldn't be comfortable having a credit limit less than $10k, but that's just because I charge everything possible to my credit cards, and I regularly charge $3k in a given month, sometimes more. I would always want a buffer above that to cover higher expenditures than normal. Another consideration--having a reasonably high credit limit prevents you from having too high of a credit utilization ratio, which impacts your credit rating.

However, if you don't plan to use credit cards very often (if at all), you would probably be fine to keep a limit of $5000 or less.

Care credit 5000 - paid in full, this is only good for health related costs on participating providers.They have not reduced my limit.

Because of the limitation here (it's only usable for medical expenses), I wouldn't figure this into your total credit limit.

I was wandering if there is a recommendation as to how much credit to have "available" for catastrophic emergencies assuming my EF is just 1500 and my car insurance deductible is $1000.

I recommend you don't even consider credit limits and EF size as related in any way. While CC's can cover sudden expenses in a pinch, it should always be avoided. Relying on CC's as a part of your EF puts you in a VERY sticky situation, due to the interest charges that could easily result.

[disneysteve]

I agree that it depends how you use your cards. If you don't plan to use them, the limit doesn't matter. I regularly charge around 4K/month so I wouldn't want a limit any less than 20K and preferably more because occasionally our monthly charges are higher. In reality, our 4 cards have a combined limit around 100K which is way more than we'd ever possibly need, but it keeps our utilization ratio super low.

[myrdale]

A little ways down the road, once you have your current debt paid off, you'll want to establish an emergency fund, basically saving 3 to +6 months of living expenses. Once your at that point you shouldn't NEED to have the credit card.

Since the credit card will be strickly for convience at this point, I'd sit down and figure up what all you put on it each month: gas? food? vacations? clothes? Whatever that total averages out too, personally I would look at having a MINIMUM limit around x3 of that.

On the upper end, I would not go so high that I couldn't pay the card off over some 6 month period should it be maxxed out.

As the others said it's ultimately going to be a number you feel comfortable with, but maybe that can help you zero in on it.

To simplify things, I would cancle all but one card and have the limit on it set to where I needed it. I would be curious to know other's opinions on this. Why would having multiple cards be beneficial past having more credit available?

Lastly CONGRADULATIONS on all the debt you have knocked out! It is indeed a HUGE accomplisment. It is nice not owing anyone nothing.

[disneysteve]

I'd sit down and figure up what all you put on it each month: gas? food? vacations? clothes? Whatever that total averages out too, personally I would look at having a MINIMUM limit around x3 of that.

I agree with your method but as credit has tightened, the need to keep your utilization ratio low has become more and more important. I'd shoot to keep usage below 20% of your limit, so 5X your maximum monthly charges would be a better limit in order to not mess with your credit score. At least that's what I keep reading in the financial press.

[wincrasher]

I'd recommend you simply hang on to the limits you currently have and be thankful you still have them. As you've said, stop using them for now while you pay down debt and build an EF.

You have a long way to go to rebuild your credit. I will probably 2 to 3 years before you have the luxury of picking and choosing credit cards and requesting higher limits.

Never request a lower limit - that will cause a change in your ratio as others have suggested. Also, never close a card for the same reasons, plus your account age is another factor benefiting a score.

As far as your original question, if you are only wanting an appropriate limit until your EF is in place, I'd say that 1 month's expenses should be it. That would be a manageable amount to be able to repay over several months if you needed to tap it.

[Radiance]

Thank you everybody,

I am staying put, I am loosing limit anyway and I have no control over that.
I keep on paying and paying down and I realy don't want to use them at all, at least during 2010 while I pay down.

After that, who knows.

I have an ultimate goal with my EF of 12 months "salary".
At the same time I am reducing my salary utilization, currently at 80% so salary is higher than living expenses.

One step at a time, 3 months is first

Back to subject, I am not worrying about credit limit anymore. It doesn't matter